6 unrealised gains or losses on financial assets recorded as available for sale, and derivatives
designated as cash flow hedges.
2.2 CHANGE IN SIGNIFICANT ACCOUNTING POLICY
The Monetary Authority of Singapore revised MAS Notice 605 during the third quarter of 2003, allowing for the measurement of trading book positions at fair value. Following the revision,
DBS Bank revised its classification guidelines and measurement of its trading and investment securities.
Prior to the revision, Singapore Government securities and other trading securities were separately stated at cost adjusted for amortisation of premium or discount less provision.
Provision was made based on the shortfall between cost and market value determined on an aggregate portfolio basis and recognised as a charge to the profit and loss account as they arise.
With the revision, a security is classified as held for trading if it is acquired or incurred principally for the purpose of generating a profit from short-term fluctuations in price or dealer’s
margin. A security is also classified as held for trading if it is part of a portfolio for which there is evidence of a recent actual pattern of short-term profit-taking, regardless of why it was
acquired. These securities are recorded at fair value on the balance sheet, with changes in fair value recorded in “Other income” in the profit and loss account.
Securities that are not classified as held for trading are classified as investment securities. These securities are stated at cost less provision. Specific provision is made for an individual
investment when there has been a diminution in value, except where such diminution is temporary, and is charged to the profit and loss account as they arise. In addition, for corporate
debt securities, a general provision charge in line with the DBS Bank’s existing provisioning policies is also recorded in the profit and loss account.
The accounting policy change has been applied retroactively, and the comparable financial results for DBS Bank have been restated to conform to the new accounting policy.
As a result of the change, the net profit after taxation “NPAT” of DBS Bank for 2003 was S7 million higher than it would have been had the change not been made. Accordingly, the
previously reported NPAT for 2002 increased by S56 million and the beginning revenue reserves at January 1, 2002 decreased by S9 million.
2.3 SUBSIDIARY COMPANIES
Subsidiary companies are companies in which DBS Bank has an interest of more than 50 in the issued share capital at balance sheet date.
Investments in subsidiary companies are stated in the financial statements at cost less impairment losses.
2.4 ASSOCIATED AND JOINT VENTURE COMPANIES
Associated companies are companies in which DBS Bank has an equity interest of between 20 and 50 and over whose financial decisions and operating policies DBS Bank exercises
7 significant influence. A joint venture is a contractual arrangement whereby DBS Bank and its
joint venture partners undertake an economic activity, which is subject to joint control, and none of the parties involved unilaterally have control over the economic activity.
Investments in associated and joint venture companies are stated in the financial statements at cost less impairment losses.
2.5 FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated into Singapore dollars using the closing exchange rate at balance sheet date. Income and expense are translated using
exchange rates at the transaction date. All resulting changes are recognised in the profit and loss account.
The income statement of foreign entities not reporting in Singapore dollars are translated at the average rates of exchange. Balance sheets are translated at closing rate. Exchange differences
arising from the retranslation of opening foreign currency net investments and the related cost of hedging and exchange differences resulting from retranslation of the result for the year from
average rate to the year end rate are accounted for in reserves.
2.6 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with
the central banks.
2.7 LOANS AND ADVANCES
Loans and advances are carried at recoverable amounts i.e., outstanding balances after deduction of provisions for bad and doubtful debts.
Loans are classified in accordance with MAS’ guidelines as well as internal loan grading policies. These classifications, and underlying collateral valuations, are used to determine the
amount of provision required. MAS’ guidelines require banks to classify their loan portfolios into five categories – two categories for performing loans Pass and Special Mention and three
categories for classified, or non-performing loans Substandard, Doubtful or Loss.
When concessions are granted to the original terms of the loan for reasons that related to the financial difficulties of the borrower, the loan is considered a Restructured Loan. A
Restructured Loan is generally graded as Substandard or worse. Restructured Loans are not returned to performing status until specific conditions have been met, including there being no
longer any reasonable doubt regarding the timely collection of principal and interest and there having been a reasonable period of sustained performance under the restructured terms.
2.8 PROVISION FOR LOAN LOSSES
